Is A Government Shutdown Good For Anyone?

I'm Michel Martin and this is TELL ME MORE from NPR News. Later, we'll hear one side of the debate over tech in the classroom. We'll hear from the former chancellor of New York City schools about why he's become a big believer and investor in bringing tablet computers to the classroom. That's ahead.

But first, we're going to focus on the budget battle between Democrats and Republicans that may cause the first government shutdown since the Clinton administration. If Congress does not pass a budget by September 30, a week from today, it could mean cuts to personnel and programs. On Friday, President Obama talked about this with a group of auto workers in Missouri.

(SOUNDBITE OF SPEECH)

PRESIDENT BARACK OBAMA: Tell Congress, pay our bills on time. Pass a budget on time. Stop governing from crisis to crisis. Put our focus back on where it should be - on you, the American people. On creating new jobs, on growing our economy, on restoring security for middle-class families. That's what you deserve.

MARTIN: We wanted to hear what a shutdown could mean, both for federal employees and for the economy, so we've called Joe Davidson. He writes the Federal Diary column for the Washington Post. Also with us, Sudeep Reddy. He's the economics reporter for The Wall Street Journal. Welcome back to you both, thank you both so much for joining us.

JOE DAVIDSON: Thank you.

SUDEEP REDDY: Good to be here.

MARTIN: So, Sudeep, for people who haven't been following this closely - what's behind this latest shutdown threat and how likely is it, if you feel comfortable handicapping the situation?

REDDY: What's behind it is the fact that Congress has not passed a budget or any funding bill to get beyond September 30th. And, yet again, we have to go through a short-term extension of government spending to get past that date. If we don't have any kind of a funding bill by then, then the government will go into a partial shutdown where many of the government services that we know about - a lot of functions, a lot of people who're considered nonessential employees - will be sent home without pay. And that means we will go through this - not only the political charade of all of this - but there is a real impact on the economy, there are companies that rely on government contracts that may not get paid in a timely fashion.

There are people who rely on the government for something as simple as a passport who might not be able to get it as easily. And so all of the government services are going to come into question - at least the non-security functions are going to come into question where we're going to be doubting that. And, of course, this will lead into a much nastier battle around raising the federal debt limit in a couple of weeks. And if this does not go well on avoiding a government shutdown, then it's going to really raise the stakes for raising the debt limit, which could have disastrous effects on financial markets and on the economy.

MARTIN: I want to hear more about that in a minute, but Joe, what's the scope of this in terms of - can you put a dollar figure on it or a people figure on it and how are the agencies preparing for this?

DAVIDSON: I can put a people figure on it in terms of federal employees - at least based on past experience. Previously, about 800,000 out of a little more than 2 million federal employees were hit by the shutdown or at least the potential of a shutdown. And so those were the ones who did not go to work. So past experience indicates that perhaps as many as - as much as half of the federal workforce would not go to work. But this is a little bit different because that 800,000 figure comes from 1995. At that time, there were a number of appropriations bills had already passed the Congress, which means that a number of agencies were funded. That's not the case this time. So there may be well more than 800,000 federal employees.

The range of services that potentially could be affected include things that really hit individuals, for example, the National Institutes of Health might not accept new patients for clinical research. The Veterans Health Care, some aspects of it could be curtailed - it's not to say that the hospitals would close, but certain aspects of it. Law enforcement hiring could be affected. The CDC might stop surveilling for diseases. So these are certain things that definitely could affect individuals. On the other hand, things like national security will continue, border enforcement will continue, tax collection will continue. So it is a partial shutdown and not a complete shutdown. But it nonetheless will clearly have an impact on us as individuals.

MARTIN: Sudeep, you cover the global economy - how big of a footprint is there for this kind of government spending? And does it have implications beyond our borders, even though, as you said that national security functions are explicitly not addressed here - but apart from that?

REDDY: It certainly does have implications. There are people who are trying to come into the United States for business, there are people who are trying to interact with U.S. government agencies and contractors for business. And if you gum up the entire system of government in Washington, it's going to delay all of that with a ripple effect that could last weeks or months - affecting the U.S. economy, parts of the global economy. The bigger issue, of course, is how closely our economy is tied into financial markets and if investors start to worry about whether the government is going to pay its bills, whether it's going to act in a responsible fashion to do what it promised to do, then you might see investors panic and that will instantly hit the rest of the global economy and weigh on just about everyone around the world.

MARTIN: Has there been any impact on the markets so far? Do we have any sign that the markets are reacting to this now? I mean...

REDDY: When you talk to traders, you can sense there's some nervousness. It's always difficult to pinpoint exactly what's causing that - whether it's the antics in Congress or the messages from the Federal Reserve. But there's clearly a lot more nervousness. And you can see that over the - where investors can make their bets over the next three weeks, they're pricing in a lot more volatility, a lot more fear about what's going to happen over the next few weeks. It's kind of difficult when you look at something like this.

Most of the time, investors have looked at a government shutdown as just political theater - something that will be resolved in a couple of days. Because this one is tied into a number of other issues, including raising the federal borrowing limit in mid-October, that's what makes people fairly nervous that this may not end with a short shutdown. It could lead into other fights.

MARTIN: Joe, there is - a number of the president's critics have been very critical of the fact that he - his administration has stopped White House tours. And they feel that that's just kind of a gesture to annoy people, to sway public opinion. Is that a fair criticism? Are the kinds of impacts that we're talking about really designed to kind of cause pain, so as to impose political pain on people down the road? Or is it just unavoidable that if the government shuts down, in fact, the public has to be directly affected?

DAVIDSON: I don't think that the White House, for example, is cherry picking which services to potentially shut down. It has to do with those services that are considered essential services or nonessential - or excepted. And so a lot of this stuff is basically written into law. And so it's not as if the White House can decide, OK, for political purposes we're going to shut this down, but keep this open. I don't think that's the case.

And it's also true that many folks who are opposed to big government - conservative Republicans including Karl Rove, who a few days ago wrote an op-ed in The Wall Street Journal really being critical of House Republicans for political reasons. I mean, he indicated that this is a way that Republicans can shoot themselves in their feet because a government shutdown would be blamed on the Republican Party and this would hurt the Republican Party, ultimately.

MARTIN: Sudeep.

REDDY: And, Michel, the nutty part of this, the reason people end up being so frustrated by the discussion around a government shutdown, is the cause of it is a debate about the budget and unsustainable budgets for a decade down the line. This does nothing to address any of that. This does nothing to deal with our long-term spending problem on Medicare, for instance, and Medicaid. That's something that we really need Congress to focus on and what they're doing instead is having a fight about a smaller part of the budget and kind of nipping around the edges of government services that people depend on, instead of actually getting to the core of the problem, which is our entitlement program and how it's going to be run a decade from now.

MARTIN: Sudeep Reddy is an economics reporter for The Wall Street Journal. Joe Davidson writes the Federal Diary column for the Washington Post. They were both here with us in our Washington, D.C. studios. Thank you both so much for joining us.